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Mortgage Agreement Containing Arbitration Rider was not Sufficiently Related to Accompanying Life Insurance Contract to Trigger Arbitration of All Disputes

Helen Griggs v. Luke Evans et al.
Court of Special Appeals of Maryland, No. 2596 (Md. App. May 2, 2012)

by Jhanelle Graham, Summer Associate
Semmes, Bowen & Semmes (

In Griggs v. Evans, the Court of Special Appeals of Maryland vacated the order of the Circuit Court for Baltimore City compelling arbitration of “all issues” related to a credit life insurance claim, and remanded the case for further proceedings consistent with the intermediate appellate court’s opinion. Writing for the Court, Judge Krauser determined that Luke Evans and Andrea Teddy Dailey, Jr., acting either for their own pecuniary gain or as non-signatory agents of Household Life Insurance Company (“Household Life”), could not enforce an arbitration rider between Helen Griggs and Household Life.

On January 20, 2006, Mrs. Griggs and her husband (“the Griggses”) executed loan documents at Beneficial Mortgage Company of Maryland (“Beneficial Mortgage”) to refinance their mortgage. Under the supervision of Dailey and Evans—both employees of Beneficial Mortgage—the Griggses were “presented with a voluminous amount of paperwork to sign and initial” for the mortgage agreement, which included an arbitration rider. Mrs. Griggs claimed, however, that neither she nor her husband was aware that a life insurance application from Household Life was among the documents they were executing. This was, in part, because an independent loan closer completed the insurance application for the Griggses by asking them a series of questions regarding their respective medical histories. During this inquiry, the Griggses denied having any medical illnesses.

After receiving their first loan statement, the Griggses became aware of the credit life insurance policy and began paying the monthly premium of $162.50 to Household Life. On January 12, 2008, Mr. Griggs died of lung cancer, and Mrs. Griggs filed an insurance claim with Household Life for $150,000, the maximum benefit under the policy. In a letter dated April 14, 2008, Household Life denied Mrs. Griggs’s claim on the ground that Mr. Griggs had failed to disclose material facts about his medical history that would have resulted in a denial of his coverage.

On September 18, 2008, Mrs. Griggs filed a Complaint against Household Life in the Circuit Court for Baltimore City, alleging breach of contract and emotional distress. On July 17, 2009, she amended the Complaint to join Dailey and Evans on counts of fraud and vicarious liability. Dailey and Evans moved to dismiss the case or, in the event that dismissal was not granted, to compel arbitration pursuant to the arbitration rider in the mortgage agreement and to stay all proceedings pending the outcome of arbitration. After a hearing on the Motion to Compel, the circuit court issued an Order granting the motion and requiring Mrs. Griggs “to submit to arbitration on all issues.” The propriety of arbitration was the sole issue before the intermediate appellate court.

In American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88 (4th Cir. 1996), the court introduced the “significant relationship” test to determine whether an arbitration provision applied to a dispute that did not arise from the governing contract but fell under a related agreement. Arguing that the Griggses’ life insurance policy would not have been available without execution of the mortgage agreement, Dailey and Evans posited that the “significant relationship” test was satisfied. Second, Dailey and Evans contended that they were entitled to enforce the arbitration rider under an agency theory, acting not as agents of Household Life but as agents of Beneficial Mortgage, a signatory.

The Court of Special Appeals rejected both arguments proffered by the agents. First, the Court acknowledged that although the case falls within the Federal Arbitration Act (FAA), a determination of whether Dailey and Evans may enforce the arbitration rider is within the ambit of state law. Following Maryland’s objective standard of contract interpretation, the Court held that: (1) the Griggses claims have “at most, an incidental relationship to the Mortgage Agreement” insufficient to meet the “significant relationship” test of American Recovery; and (2) Dailey and Evans could not apply an agency theory while acting as agents of their principal, Beneficial Mortgage, which was a signatory to the mortgage agreement but a non-signatory to the life insurance contract.

The Court reasoned that American Recovery was not controlling in the instant case because Mrs. Griggs’s claims did not rely at all on the terms of the mortgage agreement containing the arbitration rider but were based solely on the terms of the optional credit life insurance contract. Citing to Wachovia Bank N.A. v. Schmidt, 445 F.3d 762 (4th Cir. 2006), the Court explained that a contract containing an arbitration clause may be transactionally-related but not necessarily “significantly related” to another contract such as to require arbitration of claims arising from both. Here, the Court determined that the relationship between the life insurance contract and mortgage agreement was tenuous, at best. The Court also relied upon Brantley v. Republic Mortgage Insurance Co., 424 F.3d 392 (4th Cir. 2005) in rejecting Dailey and Evans’s agency theory. Although the Court conceded that a non-signatory agent may enforce an arbitration agreement executed by his principal, the life insurance claims at issue were not sufficiently related to the actions of the agents on behalf of Beneficial Mortgage to trigger the arbitration agreement. For these reasons, the intermediate appellate court held it improper for the circuit court to compel arbitration of claims arising from the life insurance contract.